Once considered a last resort for desperate sellers or foreclosed properties, the auction mechanism is being increasingly utilised to sell luxury homes, many of which were previously languishing in an uncertain market after significant price cuts.
As the housing slump drags on, the carrying costs of waiting out the market have become onerous, even for the wealthiest. A seller who put a home on the market in 2009 hoping that a turnaround was on the horizon, may now be realising that it could take several years or more for the market to rebound.
At Auction Alliance, the average price of a home sold on auction is up nearly 40% from a year ago, according to CEO Rael Levitt.
He asserts that this year, the Cape-based auction company has seen enquiries for home auctions above R20 million double from a few years ago. In 2010, the company had 31 enquiries from sellers wanting to sell their homes above R10 million, and this year, has received 54 to date.
As the housing slump drags on, the carrying costs of waiting out the market have become onerous, even for the wealthiest. A seller who put a home on the market in 2009 hoping that a turnaround was on the horizon, may now be realising that it could take several years or more for the market to rebound.
The ultra high-end of the market is particularly vulnerable. Rates and taxes on homes valued above R10 million can run into tens of thousands of rands per year, in addition to staffing, landscaping and other necessary maintenance costs.
As of September, houses priced at R10 million and above declined nearly 9.5% in value from last year, according to Auction Alliance. “Eventually, even the people who have unlimited means will throw in the towel at some point”, says Levitt.
There is a contention held by some real estate agents that auctions are not the best way for sellers to get the highest price in South Africa because when sales happen they are more often than not at a steep discount. However, Levitt points out that homes generally sell for significant discounts in today's real estate market regardless of the method of sale.
“Auction companies can reach a wider pool of buyers than local brokers, and an auction announcement can create a sense of urgency that's impossible to replicate in the buyer's market of today”.
Some brokers warn that when a mansion or estate fails to sell at auction, it can become tarnished, making it harder to sell in the future. Whilst that may well be true, Levitt maintains that many houses sit on the market for months, sometimes years, and when the same properties are repeatedly advertised for extended periods, sellers have more egg on their faces.
He asserts that the challenge for auction companies is to aggressively market expensive to build, sometimes one-of-a-kind homes that will likely sell for steeply discounted prices, without making it feel like a fire sale.
“We want the show days to be perceived as a luxury experience. We're approaching it much like Sotheby's would approach the sale of art. Brochures are often sent directly to high net worth potential buyers, or their brokers and ads are placed online, in national newspapers or glossy luxury magazines in South Africa, and, sometimes, as far away as the United Kingdom and Germany”.
Levitt says with investor appetite for residential auctions growing significantly in recent years, the previous stigma associated with property auctions has swiftly begun to dissipate. “Residential auctions have revealed their maturity since the global recession, and their increased popularity amongst the general buying public, is proof of the results they offer sellers and the value they offer buyers”.
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